Ladies and gentlemen, good day and Welcome to the Q2 FY26 Earnings Conference Call of Aditya Birla Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the Conference Call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that the conference is being recorded. I now hand the conference over to Ms. Vishakha Mulye, MD and CEO, Aditya Birla Capital Limited. Thank you, and over to you, ma'am.
Good evening, everyone, and welcome to the earnings call of Aditya Birla Capital for Q2 of FY2026. Joining me today are senior members of my team: Bala, Rakesh, Pankaj, Kamlesh, Mayank, Pinky, Vijay, Ramesh, and Deep. I will cover our strategy, financial and business performance, and Vijay will cover key financial and business highlights, followed by a discussion on performance of our key businesses by our business CEOs. The Indian economy continues to exhibit resilience, with a strong GDP growth in an uncertain global macroeconomic environment. Headline CPI inflation has remained benign.
The government has rationalized GST rates, with an objective of stimulating consumption and growth. We are starting to see some benefits of these measures in terms of record automobile and light goods sales since the last week of September. The growth outlook for the second half of FY 2026 remains strong, driven by implementation of structural reforms, including streamlined GST rates, above-normal monsoon, and rising capacity utilization. However, ongoing tariff and trade policy uncertainties will impact external demand and need to be monitored closely.
At Aditya Birla Capital, we continue to focus on driving quality and profitable growth by leveraging data, digital, and technology. Our customer-centric approach enables us to provide simple and holistic financial solutions in a seamless way. Prudent risk management practices form the bedrock of our approach have enabled us to protect capital and deliver risk-calibrated and sustainable returns across businesses. We also continue to strengthen our omnichannel-based distribution network, coming to the financial and business performance for the quarter. One, growth and profitability.
During Q2 of FY 2026, the consolidated profit after tax increased by 3% year-on-year to INR 855 crore. The total consolidated revenue grew by 4% year-on-year and 10% sequentially to INR 12,481 crore. In our NBFC business, disbursement increased by 39% sequentially to INR 21,990 crore in Q2 of the current year. The NBFC portfolio grew by 22% year-on-year and 6% sequentially to INR 1.4 trillion.
We had mentioned in our previous quarter's earnings call that given the uncertainties in the operating environment, we had taken various proactive interventions in personal and consumer loan and unsecured business loan segments, such as tightening the underwriting norm, strengthening our internal sourcing channels and teams, and recalibrating the sourcing from digital partners. The credit environment in the personal and consumer loan segment has settled since March and remains stable.
We continue to build on the growth momentum in personal and consumer loan spend in Q1, with the disbursement growing by 52% year-on-year and 26% sequentially to about INR 4,970 crore in Q2. The personal loan portfolio grew by 15% year-on-year and 11% sequentially to INR 18,218 crore and comprises 13% of our total portfolio. We are also seeing signs of environment stabilizing in the unsecured business loan segment. Disbursement in this segment grew by 32% year-on-year and 37% sequentially to about INR 1,500 crore. The unsecured business loan portfolio grew by 24% year-on-year and 11% sequentially to INR 13,663 crore and comprises 10% of our total portfolio.
The secured SME and corporate and mid-market segments continue to show steady growth. The secured business loans to SMEs grew by 22% year-on-year and 6% sequentially. The corporate and mid-market portfolio grew by 23% year-on-year and 4% sequentially. I'm happy to share that our asset quality continues to remain strong. The credit quality indicators, such as bounce rates, forward flows, and delinquency rates across all segments, are stacking up very well. Gross Stage II and III loans declined by 121 basis points year-on-year and 67 basis points sequentially to 3.03% as of September end.
During the quarter, we have sold Gross Stage III assets from our business loan portfolio, which Rakesh will cover in detail later. Our provision coverage on Stage III loans has improved from 41.2% as of June end to 44.2% as of September end. Our credit cost in the current quarter is 1.16%, and we expect the credit cost to be in the same range of 1.2%-1.3% in FY26. The profit after tax of NBFC segment grew by 14% year-on-year to INR 714 crore in Q2 of FY26. The ROA of NBFC segment was 2.2% in the current quarter. Coming to our HFC business, we have created a full-stack franchise focused on growth, prime, and affordable segments.
In Q2 FY26, we continued to deliver on a strong growth momentum and gained market share. Our disbursement grew by 44% year-on-year to 5,786 crore rupees during the quarter. This has resulted in our HFC portfolio growing by 65% year-on-year and 11% sequentially to 38,270 crore rupees. The credit quality in HFC portfolio is among the best in class, with Stage III loans declining by 69 basis points year-on-year and 2 basis points sequentially to 0.61%. The net Stage III loans were 0.26% as of September.
Ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we reconnect. Ladies and gentlemen, thank you for patiently holding. The line for the management has been reconnected. Over to you, ma'am.
We continue to see the leverage kicking in because of the investments made in distribution, data, digital, and emerging technologies over the past two years. The OPEX to assets improved by 62 basis points year-on-year and 20 basis points sequentially to 2.39% in the current quarter. The ROA of HFC business increased by 23 basis points sequentially to 1.82%, and ROE increased by 168 basis points to 13.95%. Moving on to the asset management business. During Q2 of FY26, our average AUM grew by 11% year-on-year and 5% sequentially to more than INR 4.25 trillion. Equity AUM increased by 7% sequentially to INR 1.92 trillion.
We continue to see an improvement in the performance of our funds, with 70%-75% of our equity AUM in the top two quartiles for six months and nine months' returns. The operating profit grew by 32% year-on-year and 6% sequentially to INR 270 crore. The profit after tax was INR 241 crore in Q2 of the current year. Moving on to the insurance businesses. The growth in the life insurance business continues to remain strong. We were the fastest-growing private life insurer, with an individual first-year premium growth of 19% year-on-year in H1 of FY26. Our market share increased by 50 basis points year-on-year to 4.9%.
We continue to be the top quartile in the industry in terms of 13 and 61 months' consistency. The well-calibrated product mix, increase in the right attachment, and favorable movement in the interest rates have led to 420 basis points year-on-year increase in the net VNB margin to 11.6% in H1 of FY26. In the health insurance business, we continue to be the fastest-growing standalone health insurer. Our gross retail premium grew by 31% year-on-year, driven by our differentiated health cost model and data-driven approach to our customer acquisition. Excluding the impact of the multi-year guidelines, the growth in the GWP was 41%, and our combined ratio was 112 in H1 of FY26.
In a landmark and citizen-centric move, the government has recently waived GST on all individual life and health insurance products. This progressive reform is expected to enhance affordability, stimulate demand, and drive growth, and increase penetration in the long run. We are assessing the impact from unavailability of input tax credits on our profitability and are in dialogue with the various stakeholders to mitigate the same. Taking into consideration the above, in the life insurance business, we remain confident to achieve a net VNB margin of more than 18% in FY26.
In the health insurance business, we remain confident of improving our combined ratio in the current year from 105% in the previous year. Our omnichannel architecture allows customers to choose the channel of their choice and interact with us seamlessly across the digital platform, branches, VRMs, and fostering the engagement and loyalty. Our D2C platform, ABCD, went live about a year ago.
It offers a comprehensive portfolio of 26 products, including the payments, loans, insurance, investments, and helps customers to fulfill their financial needs. ABCD has witnessed a robust response with more than 7.6 customer acquisitions till date. Our comprehensive B2B platform, Udyog Plus, continues to scale up quite well. It has reached an AUM of INR 4,400 crores. Udyog Plus now contributes about 32% of AUM of our unsecured loan business. ABG Ecosystem now contributes 30% of the disbursement of Udyog Plus.
We added around 22 branches during the quarter ended September 2025. We are focused on capturing white spaces and planning penetration under Tier III and Tier IV locations. We now have 1,028 co-located branches across more than 1,260 locations. Going forward, we will continue with our approach of driving quality and profitable growth. Now, I request Vijay to briefly cover the financial performance of key subsidiaries for the quarter. Over to you, Vijay.
Thank you, Vishakha, and good evening, everyone. Vishakha covered the consult highlights. I'll share the standalone financials and key business highlights for our companies in brief. During Q2 of FY26, the standalone profit after tax grew by 12% year-on-year to INR 916 crore. During Q2 of FY26, we received a dividend income of INR 311 crore from ABSL AMC compared to INR 237 crore in Q2 of last year. On a standalone basis, the Tier I ratio was 15.39%, and total capital adequacy ratio was 17.98%.
Standalone return on equity adjusted for investments in subs and associates was 14.2% in Q2 of FY26. In our NBFC business, the portfolio grew by 22% year-on-year and 6% sequentially to about INR 1.4 trillion. NIM, including fee income, improved by 9 basis points sequentially to 6.06% for the quarter. The credit quality of NBFC business segment continues to be healthy, with GS2 and GS3 loans improving by 67 basis points sequentially to 3.03% as of September end. ROA of our NBFC business segment was 2.2%. Our housing finance business continues to see strong momentum. The loan portfolio grew by 65% year-on-year to INR 38,270 crore.
During Q2 FY26, we further infused equity capital amounting to INR 250 crore in our HFC subsidiaries, taking the total infusion to INR 500 crore during FY26. This infusion was done to support the growth momentum and maximize the share of our opportunities. We are seeing operating leverage kicking in, with OPEX to AUM further improving by 20 basis points in this quarter. The ROA of HFC business increased by 23 basis points sequentially, which now stands at 1.82% in Q2 of FY26. Coming to our AMC business, the quarterly average assets under management grew by 11% year-on-year and 5% sequentially to about INR 4.25 trillion, of which equity AUM was approximately 45.3%.
In the life insurance business, our first-year premium increased by 19% year-on-year in H1 FY26. The net VNB margin increased by over 400 basis points year-on-year to 11.4%, and absolute net VNB increased by 74% year-on-year to INR 237 crore in H1 of FY26. In our health insurance business, our unique and differentiated health first model helped us deliver industry-best growth of 31% year-on-year in gross written premium during H1 FY26. Excluding the impact of multi-year guidelines, the growth in GWP was 41%. I'll now hand over to Rakesh, ED and CEO of NBFC, to cover the NBFC business performance in detail. Over to you, Rakesh.
Thanks, Vijay. And good evening, everyone. The NBFC business grew by 6.4% quarter on quarter and 22% year-on-year, taking the AUM to INR 139,585 crores in Q2 of FY26. Profit delivery was hefty, registering a 4% sequential growth in the quarter profit after tax. In Q2 of FY26, we disbursed INR 21,990 crores, which was the highest-ever quarterly disbursement and 39% higher sequentially. Of the total disbursement, secured and unsecured business loans to SMEs was 42%, personal and consumer segment was 23%, and corporate and mid-corporate was at 34%.
We continue to see the momentum in our personal and consumer loans business post-strategic calibration. I'm happy to share that in Q2, disbursement in this segment registered a sequential growth of 26%, which was largely driven by improvements in branch business and scale-up of our direct digital business through proprietary journeys. The AUM grew by 11% sequentially and 15% year-on-year to 18,218 crores. About 56% of our portfolio comprises of business loans to MSMEs, which has grown 7% sequentially and 23% year-on-year to 77,532 crores. Out of this, 82% of the loans are secured and 18% is unsecured.
Disbursement in unsecured business loans grew 37% sequentially. The profit grew 11% quarter on quarter and 24% year-on-year and comprises about 10% of the overall NBFC portfolio. Of this, supply chain financing is about 1.5%, business loan is about 7.3%, and small ticket unsecured loans is about 1%. The disbursements for secured business loans to SMEs grew 33% sequentially, resulting in AUM growth of 6% quarter on quarter and 22% year-on-year. The growth has been largely driven by scaling direct sourcing efforts through our branch network.
Coming to credit quality, in personal and consumer loan segments, we continue to see a sustained improvement in credit quality parameters. The gross stage two and three reduced by 100 basis points sequentially and 180 basis points year-on-year. The GS3 for this segment stands at 2.1% as of September 2025. The GS2 plus GS3 of the unsecured business loans reduced by 380 basis points sequentially and 230 basis points year-on-year. Gross stage three for this portfolio stands at 1.9%, of which 42% of the GS3 book is covered under the government guarantee scheme.
The asset quality of the secured SME loan segment continues to be healthy on the back of strong cash flows and collaterals and is among the best in the industry. GS3 for this portfolio stands at 1.2%, down by 40 basis points sequentially and 80 basis points year-on-year. As a result of improving portfolio quality trends in each one of our segments, overall GS2 and GS3 book declined by 67 basis points quarter on quarter and 121 basis points year-on-year to 3.03%. About 73% of our book is secured, and our overall stage three book is well provided with a PCR of 44.2%, which has increased by 300 basis points sequentially.
During the quarter, we executed sale of INR 500 crores from our unsecured business loan book. This was covered under government guarantee and classified in stage three. These assets were adequately provided for as per our ECL policy. Following this transaction, the proportion of stage three assets within the unsecured business declined significantly from 5.4% in Q1 to 1.9% in Q2. For the total book, stage three assets reduced from 2.3% in Q1 to 1.7% in Q2. We have aligned our provisioning norms for unsecured business loans covered under government guarantee schemes in line with the rest of the unsecured loan portfolio.
We write off all unsecured business loans when they are overdue for more than 180 days. Going forward, we remain confident to maintain the credit cost in the range of 1.2%-1.3% at the company level. Moving to profitability, our net interest income has increased by 17% year-on-year and 7.3% sequentially to 1,994 crores. Net interest margin, including fee, was at 6.06% in the current quarter, up by 9 basis points sequentially. Our OpEx to AUM ratio increased by 29 basis points sequentially and 5 basis points year-on-year. On a half-yearly basis, this ratio has declined by 9 basis points year-on-year to 2.03%.
In Q2, we delivered profit after tax of 714 crores, registering a growth of 4% quarter on quarter and 14% year-on-year. The ROA for the quarter was 2.2%. Moving forward, we expect the mix of retail and MSME segments to improve, and we will continue to leverage our proprietary digital platforms, which are ABCD App and Udyog Plus, and invest in branches to improve share of direct sourcing. As we scale up, strengthen our capabilities, and invest in technology, our primary commitment remains to deliver sustainable returns in the upcoming quarter. With that, I will now hand over to Pankaj, MD and CEO of Housing Finance Business.
Thank you, Rakesh, and good evening to everyone on the call. I am pleased to share that Q2 FY26 is yet again a strong quarter for us in terms of disbursement, growth, and asset quality. We've continued to grow consistently for the last 12 quarters, and percentage GNPA is now at its lowest level. The key highlights for Q2 FY26 are as follows: disbursement for the quarter stood at 5,076 crores, an increase of 44% by YoY and 7% QoQ. The ABG ecosystem accounted for 15.9% of retail disbursement in Q2 FY26.
AUM as of September 2025 at 38,270 crores, reflecting a robust growth of 65% by YoY and 11% QoQ. PBT at Rs. 194 crores, up 87% by YoY and 26% QoQ. On asset quality, stage two and three assets reduced to 1.10%, improving 112 basis points by YoY and 24 basis points QoQ. ROA stood at 1.82% and ROE at 13.95%. As mentioned by me earlier, the strategic investments that we made in the last two years are starting to deliver results. We are clearly seeing signs of operating leverage coming through.
In Q1, operating expenses as a percentage of the average loan book improved by 32 basis points sequentially. In Q2 FY26 as well, we saw a further 20 basis points improvement in operating leverage. Cost-to-income ratio also reduced further by 442 basis points QoQ, and ROA improved by 22 basis points sequentially. Given this consistent improvement, we are well on track to achieve an ROA of 2%-2.2% over the next six to eight quarters, consistent with our guidance. Let me now provide a quick update on a few key pillars. During the quarter, absolute AUM growth is at INR 3,665 crores.
The growth is well balanced across both the prime and affordable segments, and our average retail ticket size stands at INR 30 lakhs, reflecting the granularity of the portfolio. On the digital front, we have achieved deep adoption of our digital platforms across the customer journey. We are already seeing strong early gains with our AI copilots across sales, underwriting, customer service, and audit. These initiatives have started giving us early gains in sales manager productivity, reduction in repeat service request, and implementation of continuous control monitoring objectives.
On asset quality, gross NPAs have improved significantly from 1.3% in September 2024 to 61 basis points in September 2025, which is a reduction of 69 basis points. Our stage three provision coverage ratio stands at 57.6%. Lastly, moving to the liability side, the share of NCDs in our funding mix has increased from 33% in Q2 FY25 to 50% in Q2 FY26. Our cost of borrowing correspondingly has improved by 17 basis points QQ and now stands at 7.52%. We have continued to deliver strong and consistent performance across all business segments and improved profitability through my focused execution across all key pillars of digital asset quality and liability management.
Thank you for your attention. With that, I now hand over to Bala, MD and CEO of our asset management company.
Thank you, Pankaj. I'll give you a quick update on the AMC performance for the Q2 FY26. Our overall Assets Under Management, including alternative assets, stood at 4.61 lakh crores, growing by 15% year-on-year. Our mutual fund quarterly average AUM reached an all-time AUM high of 4.25 lakh crores, growing by 11% year-on-year. The quarterly equity average assets across INR 2 lakh crores, including alternative assets and passive. Our SIP contribution for September 25 is at INR 1,100 crores, with 39 lakh SIP accounts contributing to overall SIP book. Our SIP AUM contributed about 44% total equity AUM, reflecting the richness of our assets.
The total number of investors for September 2025 stood at 1.07 crores, witnessing 5% year-on-year growth. We are also proud to have been selected for the EPFO mandate to manage a debt portfolio for the next five years, pending formal confirmation. We are awaiting formal confirmation from the EPFO Commissioner. At this milestone, it underscores the trust in our capability. The PMS and AIF assets surged by 8 times from INR 3,852 crores to INR 3,750 crores, fueled by strong momentum in both equity and credit segments. The ESIC mandate contributed INR 25.8 crores. While excluding SIP, AUM grew by 50% year-on-year, highlighting robust organic growth.
We also completed the first close of our ABSL structured credit outcome investment under our objective to launch India Equity Innovation Fund. Our real estate business is gaining strong momentum with 20% year-on-year growth in the book and clear path double its size by year-end, driven by robust investors' interest and solid pipeline. On the passive front, we launched ABSL BSE, pioneered momentum fund and quality index fund, with this and overall passive assets and management grew to INR 36,000 crores, reflecting 20% year-on-year growth with a customer base of 13.5 lakh full users.
Moving to the financials, Q2 FY26 revenue from operations stood at INR 461 crores, up 9% year-on-year. Operating profit stood at INR 270 crores, up 13% year-on-year. And Q2 FY26 profit before tax stood at INR 316 crores, and profit after tax stood at INR 241 crores. With this, I'll hand it over to Kamlesh Rao, MD and CEO of Aditya Birla Sun Life Insurance.
Thank you, Bala. Good evening, all. I'll give some highlights of the life insurance business. The first half of the year saw muted growth in the overall life insurance industry at about 2%, with the private life insurance industry growing at 8%. During the same period, ABSL clocked a premium growth of 19.2%. We saw balanced growth with our proprietary business growing at 13% and the partnership business growing at about 23%.
The partnership growth of 23% came across all our existing partners, as well as the recent partnerships in Bank of Maharashtra, IDFC Bank, and Axis Bank, where we have increased our mind share significantly in the first half of this year. We now have 12 bank ties, with the most recent one, Equitas Small Finance Bank, started business with us from July 25 onwards. During the half year, we added 17 branches, continuing our focus on expanding the proprietary business.
With this, we are now at 444 branches across the country. In the product mix of the individual business, traditional business, including protection, increased to 69%, and ULIP came down to 31%, helping expand margins for the first half of the year. Our recently launched participating product called Akshaya Plan contributed 15% of our overall H1 business, and our protection mix now stands at 5% with the successful launch of our Super Term Plan. In the group life insurance segment, the private industry grew by 19%, and the overall industry grew by 11%. As we articulated in Q1, we have calibrated the interest rate sensitive business as part of our strategy.
So while the degrowth was 51% in Q1 for ABSLI, we have brought that down to 22% in H1. We will continue to grow the interest rate sensitive fund business in a mature manner in a low interest rate environment. We continue to be at rank two in the ULIP AUM in the industry with an AUM size of INR 40,000 crores plus in the group business. Current life business registered a growth rate of 28%. On GTL business, we continue to remain focused on expanding the margins. Group AUM contributes about 26% of the overall AUM at INR 27,058 crores. Our total premium for H1 stands at INR 8,941 crores, with a 13-month persistency at 86.4%.
Renewal premium grew by 18%, with growth across individual and group segment. Our digital connections now account for 83% of our renewal premium. We continue to work on customer lifetime value, which is reflected in our upsell ratio of 32%. On quality parameters, our overall customer NPS now stands at 61 compared to 55 last year's same time. While the 13-month cohorts have seen some marginal dip, all other cohorts are growing compared with the same time last year. Our OPEX to premium ratio stands at 24.6% due to the lower group private fund business as narrated before.
The retail OPEX to premium ratio is progressing as per plan. ABSL crossed the AUM of 1 lakh crores in April 2025, and we now stand at 1,04,292 crores, YOY growth of 9%. 24% of this AUM is in equity, and the balance is 76% in debt. 93% of our funds continue to outperform in our investment performance in the respective benchmarks. Our digital adoption across various areas is demonstrated in slide 46. 100% of the new business customers are onboarded digitally. 93% of all our services are now available digitally. 67% of these services are straight-to processes, and our customer self-service ratio now stands at 93%.
The recent GST exemption on life insurance premium, as mentioned by Vishakha, is a welcome step towards making life insurance more affordable and accessible to a larger segment of the population. We also believe that this move will expand the overall market in the long run, strengthen customer trust in life insurance as a value proposition, and create a more sustainable growth environment for the industry. The exemption does lead to some short-term margin pressure, given the inability to currently reprice the products and the loss of input tax credits as compared to before. However, we believe these are transitional in nature.
Various methods are being evaluated, including distribution costs, to mitigate the same impact, and all of these are in various stages of execution. Our solvency continues to remain healthy at 188%. Our net margins for the first half of the year are at 11.6%, 420 basis points higher than last year's same time at 7.4%. We observed margin expansion due to a controlled ULIP mix and increase in protection mix, value equity growth in partnership business, and rider attachments. On the back of strong growth and quality of our book, we are reporting an embedded value of 14,585 crores with a growth of 18% over last year's same time.
We will continue to focus on increasing productivity across all cohorts in our proprietary business. Within our partnership business, we will continue to invest in our bank partners to increase our mind share and drive better productivity across all the partners that we have. Our guidance is to grow the individual FIP at a figure of 20% plus. While achieving this, we intend expanding our current VNB margins of 18% plus and, in absolute numbers, double the value of our net VNB in the next three years' time frame. With this, I hand over to Mayank, MD and CEO of Health Insurance.
Thank you, Kamlesh. This now shares the overview of our performance of our health insurance business. We had yet another very strong quarter, and we continue to build on the growth momentum of Q1 of this financial year, maintaining our track record of consistently outpacing market growth while continuing to improve profitability metrics as well. For the first half of the year, as per old accounting regulation, we achieved a gross premium of INR 3,070 crores, representing a strong 41% YOY growth. On a YoY basis, our gross premiums stood at INR 239 crores at a growth of 31%.
With our market share, standalone has now increased from 11.9% to 13.9%, an increase of 200 basis points on the old regime. We registered a strong growth momentum across both retail and group business. The retail business registered an impressive growth of 35% in the first half of 2026, and the growth in retail was driven across all our retail channels. Our corporate business delivered a strong 49% YOY growth, driven by our focused and disciplined strategy to create a sustainable franchise in this segment. As I've said earlier, we do this by playing in the very specific corporate segment and industry.
We, in early this year, took our differentiated health-first insurance model to corporate also, and we are getting very positive feedback, and this will only further improve our competitive strength here. On the profitability front, our net loss for H1 stood at INR 101 crores as per the new regulation and INR 76 crores as per the old one, with a corresponding number of INR 115 crores of loss last year. Our combined ratio for H1 26, as per old regulation, is under 8% versus 113% on a comparable basis in the previous year. These improvements underscore our continued focus on ULIP economics and thus overall profitability in the market.
We strongly believe our robust growth and superior ULIP economics are driven by our digitally enabled and differentiated health-first business model. This model gives us a selection advantage with a larger share of more health-conscious consumers, and then, based on hyper-personalized health engagement, access to a deeper understanding of the health profile of our informed space. In the first half of this year, 9.4% of our eligible consumers earn good health-based incentives, which we call health returns. This is up from 7.4% last year, again reflecting a deep engagement within our wellness ecosystem.
These consumers exhibit an 8% lower loss ratio than an 11% better persistency shown in slides 56 and 57. Similarly, our investments in managing consumers with high health risk through interventions with more than 80,000 lives have led to an improvement in their loss ratio by more than 6%. Overall, this has thus helped our retail loss ratios not only under control on an internal basis but much better than the market ratio that we see.
We continue to innovate to expand the scale of the differentiated health-first model, while our collaboration with a leading wearable brand has experienced very encouraging results with increasing sales volumes, helping us get even deeper access to a large pool of consumer health data. The app, our Activ Health app, now provides opportunity for non-policy holders also to experience our comprehensive health and wellness ecosystem.
Within our large data corpus, we have been investing significantly and consistently in our data analytics play to consistently create efficiencies across the entire business cycle. We have given some examples of the key use cases across sales, hyper-personal consumer engagement, claims processing in slide 60. The recent structural GST change, effective 22nd September, is expected to benefit the health insurance sector in the medium term. The short-term impact of the GST reforms is being reviewed with various stakeholders to take suitable action.
Looking ahead, we remain very optimistic about the long-term growth prospects of the health insurance sector with our differentiated health-first model and sharp competition. ABSL is well positioned to grow ahead of the market in times to come as well. Thank you, and I'll now hand it back to Vishakha for a closing statement.
Thank you, Mayank. This concludes our remarks on Q2 FY2026 performance, and we'll be very happy to take any questions.
Thank you very much, ma'am. We will now begin with the question and answer session. Anyone who wishes to ask questions may press star and one on the touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Chintan Shah from ICICI Securities. Please go ahead.
Yeah. Thank you for the opportunity, and congratulations on a very strong set of numbers. So on the NBFC piece, firstly, on the OpEx cost, so I think there is a jump of more than 25% sequentially on the operating expense front. I just wanted to understand, is there any one-off here? First on that.
And secondly, on the yields part, yields have been kind of declining for now almost five, six quarters. Hence, now, given that we are increasing focus on the unsecured business, personal consumer loans, which is an unsecured business loan as well, and it's in the Q2 of strong growth in these businesses. When do we see this reflecting in the yields part? Yeah, and that's on the NBFC business. Yeah. Thank you.
So Chintan, on OpEx, it's one-off. And if you look at the H1 number, it's 1.9% OpEx to AUM. Going forward, we will be in this range. So we don't see the last quarter, 1.74 was slightly muted. If you see last year, it was 2%, above 2%. And if you look at H1, it's 1.9. So going forward, it should be at 1.9 in that range. So this one-off should get normalized going forward. Your second question was on the yields.
If you look at our yield, in fact, from compared to the Q1 , I think it's in the same range, 12.71 and 12.68. So that's the range. Our margin, if you look at, margin has improved by 9 basis points from 5.97 to 6.06. Clearly, as our personal consumer and unsecured business grows the way it has grown in Q2, we will see improvement in yields going forward.
Okay. Sure. So sir, if you could just quantify the amount of OpEx, meaning exactly in terms of some qualitative aspect on what was it exactly, so that would be helpful. Yeah.
So these will be primarily on the business side, retail operations and investment in branches, technology, and all, and that's slightly one-off, which we did. So I think we can take you through that separately.
Sure. And also, sir, you told the margins have improved, but I think they have improved largely because of the borrowing cost, while yields have compressed even three basis points okay in this quarter. So basically, I was just trying to understand, so probably can we expect some how much or if you could just give the breakup of the yields into the four segments, segment-wise yield breakup, if that is possible.
Segment-wise yield, if you look at EIR, I can give you for so in the same range, like personal consumer, if you look at, it's around 15%-17% range is what we had. Our corporate is in the same range. We have always mentioned 10.75%-11%, so it's in that range. Secured was in the range of around 12%, and it is at around 11.96%. So I think the yields are quite stable. Chintan, as I said, as we grow our personal consumer, we will start seeing the benefit in Q3, Q4 with the growth we have seen in Q2. So yeah, so I think the margin, the yields will start improving in the coming quarter.
Mr. Shah, does that answer your question? Do you have any further questions?
Ladies and gentlemen, we'll move on to the next question, which is from the line of Avinash Singh from Emkay Global Financial Services Limited. Please go ahead.
Yeah. Hi. Good evening. Thanks for the opportunity. The first one is regarding your NPS sale, some 700-odd crores out of that, you highlighted 500-odd crores from unsecured business. So can you help us understand, I mean, the rationale behind the strategy kind of doing this ARC sale when particularly when the portfolio had the guarantee, the CGTMSE guarantee backing? So what sort of a or why this kind of a strategy that rather than getting recovery from guarantees or selling it to ARC? So that's one.
Second question is on housing finance. I mean, can you provide some color on the competitive intensity there, and does that mean that in this falling rate environment, there will be kind of pressure on your margins? So I mean, of course, so far in the last four quarters, the profitability improvements have been very, very impressive. But going forward, do you see this competitive intensity kind of bringing some sort of a pressure on margins? Thanks.
Avinash, the rationale was we wanted to align whether it's guaranteed by the government guarantees or whatever. We wanted to align the ECL policy and the write-off policy, and that's the reason why we did it, because there used to be a cash flow mismatch in terms of when the claim comes back and all of that, and it used to look elevated. That's the reason. One, we have taken a one-time decision to align it with all our other businesses.
Yeah. Avinash, your question?
Yeah. You want to still continue?
Avinash, Pankaj, here on the housing questions that you asked, there is a compression in yields that is expected. So I think what we have done here is, well, logically, there has been a lot of competition intensity. If you look at our EIR also, it has come down from 10.77 basis points to 10.62. So there's a 15 basis points decrease that has happened there because you also made a change in EIR of 15 basis points that has shown up here. But as the competition intensity moves up, I will maintain that the opportunity in the HFC segment is continuing to be very, very large. As of June, the industry was still at about 10.5 lakh crores. Our AUM is INR 38,000 crores.
The market share is still at about 3.8-3.9%. So opportunity is quite significant. I think we need to find out our own space there, which we have been doing quite well. Backend, entire product range has been a full-stack player, we having the best-in-class digital platforms. And also, most importantly, I think the distribution structure, which is giving us and providing us this growth. Having said that, I think Avinash, in the last call also, I had mentioned that in the way we are looking at the business, while currently the NI is looking at 5.07% and the ROA is looking at 1.82% with a pretty leverage coming in quite sharply in the last two quarters.
I think the idea is that there will be naturally some reduction in the NI, so 5.07% that we are talking, realistically, we should be seeing it somewhere in the range of between 4.75-4.80% at the end of the year. So that's the broad range. But that will get compensated by the operating leverage that we will get. So right now, 1.82, which is the ROA, we've guided that in the next six quarters, this number will be close to anywhere between 2%-2.2%. So that is where we are on the HFC business.
Yeah. Thanks. Thanks. Rakesh, just I mean, this sale to ARC or this government guarantee-backed portfolio, this is a kind of a one-off, one-time business. But your kind of your reliance or your willingness to get this CGTMSE backing, that does not change. I mean, for future growth also, you will continue to take this guarantee scheme, or is there a kind of hurried rethink on that strategy?
Yes. Avinash, we will continue to leverage that. And the only change is that we have aligned the provisioning policy in terms of the writing off at a guaranteed portfolio also at 180 days.
Very clear. Thank you.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. My question for NBFC. So out of 735 crores, you mentioned 500 crores is unsecured business loan. What was the rest of the book, and what is the sort of haircut that we have seen in unsecured business loan book, which was by CGTMSE?
Nidhesh , I think the remaining is the SME, secured SME, which was the old portfolio. So that's the remaining.
Sure. And the book that was backed by CGTMSE, what is the haircut that ARC has that we have taken?
No, there is no haircut. As I mentioned, the reason why we have done it is because there's always a claim mismatch in terms of the timing mismatch. That's the reason one time we have taken this call to align with all other portfolio, and going forward, we will stick to that, and we will leverage that credit guarantee, as I mentioned. But from a provisioning point of view, from a write-off point of view, we will treat it exactly the same as what we do all other unsecured portfolio.
Sure. The second question on NBFC is that how are you seeing cost of funds moving? Because you mentioned the yield should start to improve, and the cost of funds for the NBFCs going forward, there could be a sharp expansion in margins. So what is the trajectory of cost of funds that you see over next two to three quarters?
Cost of fund, we operate in a competitive environment, and if the cost of fund comes down, there will be if the floating rate interest is there, we need to pass it on to our customers, so it's a fine balance, Nidhesh , and we will continue to do that, but as I mentioned, with the change in the product mix, our yield should improve, and that should help our margins too.
So margin trajectory should be upward going forward, right, in the next few quarters?
Yes. Yes. I think Q4 , we will start seeing some bit of improvement in margins because I think the way we have grown in Q2, and we will continue, we'll see some improvement sure.
Sure. The next question is on housing finance business. Since we have witnessed pretty significant operating leverage this quarter, ROAs have already reached pretty decent numbers. So why are we guiding that we will take still at FY2 6 ? I think if we see the similar amount of operating leverage, we should be able to reach 2% ROA in next Q3 .
So I think we'll not stop there on the latter side. But what we are seeing is in any businesses, any business that you run, naturally, the first impact that we saw was quite significant because the gains in operating leverage typically come in two ways. One, it comes with increase in productivity, that has improved significantly for us in the last 12 to 13 months. The other advantage that also comes in is that as the disbursement to opening book for that particular year keeps going down, when the overall absolute disbursement is high. But last year, you would have noticed that number was 57% of the overall book.
Our disbursement to overall book, which was INR 18,000 crores and INR 31,000 crores was the overall book. That number was 57%. As the disbursement to the opening book portion keeps reducing, we also get operating leverage. These are the two levels from where the operating leverage will actually come in. So naturally, the impact has been sharper in the Q1 and the Q2 . The impact may not be 20 basis points in the third and the Q4 . It will be there, but we feel strongly that when I said ROA, also I said 2 and 2.2. So 2.2, I think that will have time to reach between 5 to 6 quarters . So that is the way in which we are looking at the numbers right now.
Sure. And the last question is on life insurance. What is the impact of GST on margins that you anticipate, and what is the full year's VNB margin guidance? Because of the GST impact, what is the VNB margin guidance for the full year now?
The NBFC margins for the next six months will also be a function of how we'll aim to moderate the product mix. And like I said, we are in negotiations on distribution costs, and all of them have not fully fallen in place at this point in time. Typically, NBFC margins could range bound between 200-250 basis points. But like I said, depending on what we are negotiating right now and what discussions that we are doing, we continue to maintain our guidance to say that by the end of the year, we will be whatever we have guided about 18% margins of net NBFC. We still are giving the same guidance to say we'll get there by the end of the year.
Sure. That's it from my side. Thank you.
Thank you. The next question is from the line of Sameer Bhise from Dymon Asia Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity and congrats on a strong set of numbers. Just wanted to pick your brains on slightly medium-term picture. Now that credit costs are fairly under control, we are entering a period of margin expansion. How should one think on the six- to eight-quarter margin trajectory for the NBFC piece? I think that is one. Yeah.
So your question is on the margin? Yeah. So.
And the ROA. And the ROA. Yeah.
As we improve our personal and consumer and unsecured business loan, that will help us improve our yields and margins. Also, the OpEx, which we mentioned, which is 2.03, if that comes down to 1.9, we will see some expansion in our ROAs.
Okay. I think that would be a fairly linear outcome. Secondly, in terms of this policy change on the CG, the guaranteed part, any incremental impact that you expect from a P&L perspective? Good to see that it hasn't impacted credit costs this quarter, but even going forward?
We don't see any incremental impact.
Okay. And the recoveries will accrue as they accrue when the payouts happen from the government side?
We'll continue to focus on the collections and claims from the guarantee.
Okay. This is helpful.
1.2 to 1.3.
Yeah. So we have given a guidance at a company level. As we grow our retail portfolio, the credit costs at a company level will be at 1.2%-1.3% range.
Okay. Great. Great. This is helpful. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.
Yeah. Hi. Just a continuation of the previous question on ROA. Some of the math doesn't add because for the last four quarters, you are stuck in this 2.2% ROA range, and if I look at it this quarter, your margins went up, credit costs came down, but still you are at 2.2%, in fact, lower than the previous quarter ROA marginally. Now, you had given a medium-term aspiration of 3%.
How do you take it up by 80 basis points? Because interest rate cyclicality will also be there. Can you really structurally for this business aspire a 3% ROA? Because you are saying your credit costs are also not going to come down. It is going to go up from the current level of 1.16 to 1.2 to 1.3. So clearly not, I mean, 2.2%-3%, that 80 basis points gap, how are you going to bridge over the next three, four years?
Suresh, we had given a guidance of 2.5%. By the end of this Q4, we should be closer to around 2.4, and from there on, we will look at how do we expand the margins, but in the given environment, we had mentioned about 2.5% in the medium term. In slightly longer term, we will have to recalibrate and see how we expand the ROAs from there.
Okay. Okay. So 2.4-2.5 is what you're saying over the medium term. Okay. Cool. The other thing is that on the heavy regulations on mutual funds, can Bala say what could be the impact? Have you guys done any preliminary assessment? How do you want to calculate? I know it's dropped, but any deliberations here on that?
Yeah. Here's what you've done, Suresh, is one, of course, when we first of all welcome what you have proposed in terms of various changes that they've made. It has put to improving the compliance standards, governance, reporting, and other stuff. With respect to the change of TER calculation, making these types of applications out to the TER, that will make it a little easy for the MF industry from a monitoring point of view
. At the same time, given the fact that they have proposed some changes in the TER structure, we have, of course, taken it up with the committee which is formed under the IMC to make a holistic representation, and we are, at this point of time, a little confident that they will be quite amenable to the changes that will be proposed to the SEBI. I think their intention is not to hurt the mutual fund industry, which, of course, has been one of the largest supporters of the Indian capital market. But having said that, we'll take it up with SEBI for proper suggestion. That's the plan.
Okay. Okay. Thank you.
Thank you. The next question is from the line of Punit Bahlani with Macquarie from Macquarie. Please go ahead.
Yeah. Thanks so much. Just one question on the margins bit. Over the past two quarters, your personal loan disbursements have been pretty good, but margins, yields, if I might be more specific, have declined. So I know part of it has got to do with the repricing bit. But fair to assume that this half year done with the repricing, and now we'll directly see the impact of these increased disbursements flow into the yields from next quarter onwards. The increase in yields will be in a significant proportion? Yeah. That's the only question I have.
Yeah. So as I mentioned, the growth which we have seen in the last, so we have to look at the overall margin of the portfolio. So I think with that going up, personal and consumer growing, unsecured business growing, we will start seeing improvement in yields and margins as we go along in Q3 and Q4. Yeah.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Ms. Vishakha Mulye for closing comments. Thank you, and over to you, ma'am.
Thank you so much for joining us today evening. And if there are any more questions, all of us are here, and feel free to reach out to us. So thanks a lot again.
Thank you, members of the management. Ladies and gentlemen, on behalf of Aditya Birla Capital Limited, that concludes this Conference. We thank you for joining us, and you may now disconnect your lines. Thank you.